Top 2 S&P 500 Index Funds

Investing in the S&P 500 index is cheap and effective via these two BMO ETFs.

Tony Dong, MSc, CETF®

Tony turned a series of 2017 marijuana stock losses into a freelance career advocating for ETF investing. He currently holds a Master’s in Risk Management from Columbia University and is a Certified ETF Advisor (CETF®). Tony is the founder of ETF Portfolio Blueprint (etfportfolioblueprint.com) and the Lead ETF Analyst for ETF Central, a partnership between Trackinsight and the NYSE. His analysis has also been featured in publications like Kiplinger, 24/7 Wall St., U.S. News & World Report, TheStreet, and Benzinga. Tony also provides independent content and marketing consulting services to various Canadian and U.S. ETF issuers. His editorial opinions for The Motley Fool remain independent and objective.

Published November 26, 2024 8:30 pm EST

| More on: ZSPZUE

For those of you new to investing, here’s a quick primer: the S&P 500 Index is like a barometer for the U.S. stock market. What exactly is it?

The S&P 500 is a rules-based index that tracks 500 of the largest U.S. companies. These companies are selected based on their size, liquidity, and earnings, and together they represent about 80% of the U.S. stock market by weight.

The good news is you don’t have to buy all 500 companies individually. You can invest in the S&P 500 through an index fund or exchange-traded fund (ETF).

Why do this? Historical data from SPIVA (S&P Indices Versus Active) shows that over the last 10 years, the S&P 500 outperformed 84.7% of all actively managed large-cap funds.

So, if you can’t beat the index, why not join it? Here are two low-cost S&P 500 index ETFs you can buy today.

ETF stands for Exchange Traded Fund — Source: Getty Images

BMO S&P 500 Index ETF

First up is the BMO S&P 500 Index ETF (TSX:ZSP), one of the largest and most popular ETFs in Canada, boasting over $17 billion in assets under management (AUM). What makes ZSP such a hit with investors?

One big reason is its low fees. With a management expense ratio (MER) of just 0.09%, it’s super affordable. If you invested $10,000, your annual fees would amount to just $9 – a fraction of what many other funds charge.

ZSP has also delivered impressive performance. Over the last 10 years, it has compounded at an annualized rate of 15%, with dividends reinvested.

BMO S&P 500 Hedged to CAD Index ETF

The BMO S&P 500 Hedged to CAD Index ETF (TSX:ZUE) is like a cousin to ZSP. Both ETFs track the S&P 500 and charge the same low 0.09% MER, but there’s one key difference: ZUE is currency hedged, while ZSP is not.

Why does this matter? Take ZSP’s impressive 15% 10-year annualized return as an example. Part of that return was boosted by a rising U.S. dollar (USD) relative to the Canadian dollar (CAD).

Because ZSP is denominated in CAD, its value increases when the USD strengthens against the CAD –essentially giving ZSP a tailwind. However, with the USD/CAD exchange recently hitting highs near 1.40, the tables could turn.

If the CAD starts to rise, ZSP could face headwinds instead of tailwinds. A stronger CAD would reduce the value of ZSP’s USD-denominated holdings when converted back into CAD, potentially dragging down returns. This is where ZUE comes in.

As a currency-hedged ETF, ZUE neutralizes the impact of currency fluctuations. A rising USD won’t boost ZUE’s returns, but a rising CAD won’t hurt it either. It’s a balanced choice if you’d rather not make bets on which way the USD/CAD exchange rate will move.